Mortgage borrowers who want to lock into current low rates are being
encouraged to act quickly as recent high rates in the capital markets are
likely to drive up mortgage prices.

Mortgage borrowers thinking of locking into current ultra-low rates should act immediately, brokers have warned, as rates in the capital markets spiked last week and could drive mortgage rates up sooner than previously thought.

A few lenders increased the cost of their fixed-rate mortgages late last week, possibly as a direct result.

The move is a surprise because it is barely 10 days since Mark Carney, the Bank of England Governor, indicated that rates would stay low until 2016. His speech – in which he spelt out what is coined “forward guidance” – at first prompted mortgage commentators to predict fixed-rate deals could fall. They already stood at their lowest ever levels.

But last week markets acted in defiance of Mr Carney, with banks and other lenders pushing up the “interbank” borrowing rates they charge each other. Traders were in effect ignoring Mr Carney’s guidance and anticipating higher rates ahead of his schedule.

This led to mortgage brokers urging their clients to remortgage now into low, long-term fixed rates, rather than delay. Ray Boulger of John Charcol said rates had “bottomed out” and said: “This reinforces our recent message for borrowers, which is that fixed rates are on the floor and for most people there is little or nothing to be gained by waiting.”

Interbank lending rates, also called “swap rates”, like mortgages, apply to money lent over set periods. Two-year swap rates have risen by 16pc in the fortnight since July 30 from 0.68pc to 0.79pc. Five-year swap rates have risen by a greater 21pc from 1.37pc to 1.66pc.

The increases mean the market expects the Bank Rate to rise sooner than Mr Carney has indicated. “It shows that while Mr Carney says one thing, the markets think another, with at least one Bank Rate rise priced in,” said Mark Harris of mortgage broker SPF Private Clients. “Can he really keep a lid on rates until 2016?”

In normal mortgage market conditions, swap rate changes would feed rapidly into repriced mortgage deals for home owners, as banks typically raise a large chunk of their mortgage finance on the capital markets.

And at the end of last week this follow-through was possibly in evidence. Mr Boulger said that mortgage lenders appeared to be reassessing Mr Carney’s August 7 speech. He cited at least two increases to fixed-rate mortgages made toward the end of last week. “Although over the last few weeks some fixed-rate mortgage changes have been up and others down, Halifax has increased the rate on its cheapest five-year fix from 2.45pc to 2.69pc,” he said, although he pointed out this change was coupled with a £500 reduction in the mortgage’s upfront fee to £1,760.

Elsewhere Principality Building Society withdrew its market-leading five-year fixed rate of 2.99pc, previously available to borrowers with deposits as small as 25pc of the property value.

These mortgages were highly competitive, Mr Boulger said, adding: “Rate changes on deals which are market leading, or very close to it, are much more relevant than changes in rates which most people won’t consider applying for.”

But the link between swap rates and the rates lenders charge home owners is not as distinct as in the past.

The pricing of mortgages is being distorted by the Government’s Funding for Lending Scheme, whereby cheap funds are being made available to lenders by the Treasury. This was part of a wider strategy to loosen credit supply to home owners and business.

This could temporarily brake the impact of increased swap rates on mortgage costs, brokers said, although they warned that ongoing increases in swaps would feed back into mortgage pricing “at some point”.

David Hollingworth of broker London & Country said: “Although swaps may be less closely linked to fixed-rate mortgage pricing than in the past, it is still a key indicator. A rise in swap rates would indicate that fixed-rate deals are pretty much at rock bottom and potentially at risk of increasing.

Swaps have been volatile recently and fixed-rate pricing has held firm, so we will have to see how prolonged the increase in market rates is, as to whether the pressure is sufficient to translate into higher mortgage costs. What I wouldn’t be doing is holding off in the hope that fixed rates keep getting cheaper.

“It would seem to make sense to snap up a fixed deal if you have one in your sights. That would look especially true of the medium to longer-term rates.”

Currently four in five new mortgages are arranged on a fixed-rate basis, according to lenders’ trade body the Council of Mortgage Lenders. This suggests most borrowers are protecting themselves against rate rises. The best five-year rates are currently less than 3pc, and the best two-year rates a full percentage point less, at under 2pc.

But lenders have applied hefty fees to many of the deals, in some cases eradicating the benefit of the lower rate for all but the biggest mortgage borrowers.